The food crisis: beyond agriculture

Remarks by Angel Gurría, OECD Secretary-General, delivered at the Forum of the Americas

07 June 2011
Montreal, Quebec, Canada

(As prepared for delivery)

Good Morning Ladies and Gentlemen,

Food prices are, appropriately, at the very top of the international agenda. In just a few days, Ministers of Agriculture of the G20 will meet in Paris to discuss this issue. They will, hopefully, approve an action plan which will then be sent to G20 leaders for endorsement when they meet in Cannes in November.

Food prices are literally a matter of life and death, especially for the poorest of the poor, who already spend up to 80% or 90% of their income on food. The problem is that high prices may be here to stay. Medium terms projections indicate a reversal of the long term decline in real agricultural prices. At the OECD, working closely with the FAO, we produce medium term projections for global supply, demand and prices of agricultural commodities. They show indeed that across the board, prices of cereals, oilseeds and most livestock products look likely to trend significantly higher in the coming decade.

Why such a rise in food prices? Simple supply-demand factors explain this change. Growing prosperity and rising population in many parts of the world are increasing the demand and changing the pattern of consumption. More affluent populations in the emerging and developing world are shifting towards more meat and dairy products. Added to this is the demand for agricultural commodities for the production of biofuels which has accelerated in the last few years. But supply has had some difficulty keeping up. So prices have risen.

In these circumstances, the supply shocks of recent years - droughts in Australia and Canada, fires in Russia - coming at times when stocks were low, have led to quite extreme price movements. Some badly judged and hasty reactions from governments exacerbated the problem, such as export bans and other panicky reactions that added pressure on markets.

But what can be done?
First, let’s not forget that, from the point of view of farmers, high prices are an opportunity, a signal to increase production. And the solution to the current problems will lie mainly there. We must not get in the way of farmers around the world being able to respond. So the first thing that governments need to do is to rollback all those measures that distort production and trade and that prevent food from flowing from surplus to deficit areas where it is needed.

Farmers in the developed world have the know-how, the technologies and the business environment to enable them to expand production. But most of the potential to increase production is outside of the OECD countries. That is where there is land available and where the gap between current and potential yields is enormous. But a big increase in investment is needed to enable developing countries to play their part in supplying the world’s growing needs.

That investment cannot come only from the public sector. The private sector will also need to invest. For that to happen, we have to get the enabling environment right. That means making sure that national governments themselves improve their systems of governance, build public institutions and well-functioning markets, improve infrastructure, and so on. Otherwise, the needed private investment will not be forthcoming, and even public investment will not be as effective as it could and should be.

More concretely, governments could roll back the measures which mandate and subsidise biofuel production and consumption and which have created conflict between fuel and food. Governments could also refrain from “beggar thy neighbour” policies such as import and export restrictions. We have seen how disruptive they have been.

We have also understood that the market information at our disposal has not always been timely enough, detailed enough or reliable enough. There is particularly an issue about stocks. One of our major recommendations is to create a new market information mechanism – appropriately labelled AMIS, for those of you who speak French. That stands for Agricultural Market Information System. The idea is to bring together countries, the private sector and the international organisations to pool knowledge and resources, so that we can understand better when there is a crisis in the offing, or to provide reassurance if there is not.

If you think back to the 2007-08 spike in food prices, such a mechanism could have helped calm the markets for rice. Rice experienced the strongest price increases of all, and yet there was no fundamental market factor explaining why.

Alongside AMIS, we have also proposed a Rapid Response Forum, a venue where countries could discuss and coordinate policy responses, deciding together what to do to help those most affected by a price surge. This would avoid disruptive actions.

So, without saying that we can (or even should) eliminate price movements and price volatility, there is scope to help countries and individuals. Proposals are being developed to provideinformation and training on already existing financial instruments that would help to manage risk and to design new ones that address the needs of smallholders in less developed economies.. Efforts are also in the pipeline to improve the transparency in the markets for agricultural derivatives. That should allow them to better play their role in providing hedging and price discovery.

In the long run, however, the solution lies in increased production and productivity. We need to take the necessary steps now to make sure that it can happen, especially in the emerging and developing countries, where most of the potential for growth is to be found. That means investing in innovation, in education, and in infrastructure. It means creating the conditions where individual investors, farmers and others all along the chain, are willing and able to invest in the future of farming and food.

Some ask whether the food crises of recent years are an agricultural or a political issue. Let me close by trying to specifically answer that question. First, the food issues we have been seeing are a real, an important issue. But they are not exclusively an agricultural issue. Macroeconomic factors, energy policy, the financial and economic crisis, and the weather have all contributed.

But I want to leave you with this thought. Even before the crisis of 2007-08, about 800 million people were undernourished. And this was happening even with prices at historical lows. There already was a longstanding crisis and its main cause is poverty. Vanquish poverty and we will go a long way to solve the food crisis. Paradoxically many of the vulnerable are themselves smallholders and semi-subsistence producers. Food crises are above all a poverty and development issue.

Improving agricultural performance brings a double benefit. It improves the food supply, but also gives the poorest people in the world - most of whom rely on smallholder agriculture - a source of income and a much greater capacity to resist the kinds of shocks we have seen in recent years. That is the ultimate solution we need to promote.